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David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures. Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions. Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

Category: Christianity

David, I have heard you say that you have entered into partnerships in the past. What are your rules for partnerships, who will you enter with? I have a neighbor who is interested in starting a business, the start up cash is small $5000. I think there might be good opportunity, but I am concerned for good reason about my time availability, as well as Not being “unequally yoked”. What business relations do Paul’s words govern. do you have different rules for minority, majority, or controlling shares?

I appreciate your thoughts.

I have two “partnership” investments. One is very successful and is an S Corporation. The other is a limited partnership, and I wonder whether it will ever amount to anything. Both were done with friends.

There are a few things that you have to think about with partnerships:

Is your liability limited to the amount of money you invested, or could you be on the hook for more if there are losses/lawsuits?

Are there likely to be future periods where capital might need to be raised? Under what conditions will that be done?

What non-capital obligations are you taking on as a result of this? Labor, counsel, facilities, tools, etc?

How will profits and losses be allocated? Voting interests? How will it be managed? When will the partnership end? How can terms be modified? How can partnership interests be transferred, if at all? Etc.

Do you like the people that you will be partners with? You may be partners for a long time.

Be ready for the additional tax complexity of filling out schedule C, or a K-1, or some other tax form.

Go into a partnership with your eyes wide open, and check everything. If your partnership interests have limited liability, and the economics are structured similar to that of a corporation, then things are clearer, and you don’t have to worry as much.

Take note of any obligations that you might have that don’t fit into the “passive provider of limited capital with proportionate ownership” framework. Those obligations are the ones that need greater scrutiny. Include in that how those working on the partnership get compensated for their labor. Parties to the partnership may have multiple roles, and there can be conflicts of interest — imagine a partnership where one partner works in the business and receives a large salary, thus depressing profits for the non-working partners. How does that conflict of interest get settled? (Note that the same problems that exist in being an outside, passive, minority public stock investor reappear here.)

Also be aware of how ownership interests can change, and whether you may be forced to add more capital to maintain your proportionate interest in the business.

Try to have a good sense of the skill of the partner or employee managing the business. That makes all the difference in whether a business succeeds.

Most of what I say here assumes that you will not be a controlling majority partner, and that you will have limited influence over the business. If you do have control, the problems of getting cheated by someone else go away, but get replaced with the problem of making sure the business is run adequately for the interests of all partners. Your ethical obligations also expand.

You mention the “unequally yoked” passage from Second Corinthians 6, verses 14 and following. In one sense, that doesn’t have much more application here than it does in all investing if one is a Christian. Don’t involve yourself in businesses that of necessity involve you in things that you would not do yourself as a Christian. Don’t invest in enterprises where it is obvious that management does not care about ethics — you can see it in their behavior. This will be a little clearer and close to home in a partnership with a friend — you will know a lot more about what is going on.

With a non-limited partnership, there is an additional way the “unequally yoked” passage applies. You expose your entire economic well-being to risk when you are a general partner. It is like a marriage — it is very difficult to negotiate your way out of the unlimited guarantee that you make there. It is like being a co-signer, which the Bible says to avoid.

Of itself, that doesn’t expose you to the unequal yoke, but when you are in an economic agreement that binding, if your partner takes the business in an ethical direction you find dubious, you will be in a weak position to do something about this. There is where the unequal yoke appears amid unlimited liability.

That’s all for now. There’s a lot more to consider here, but this is meant to be an introduction to the issues involved in partnerships. Hope it works well for you.

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Here’s another letter from a reader. If reading about my faith turns you off, stop reading now, because this will be thicker than usual.

Hi David,

I’ve just started reading your blog, and greatly enjoy it. I noticed you integrated your faith with your perception of the world and economics/policy. I am a Christian who is attracted to the wonder of the financial markets. So many individuals making so many decisions being affected in so many ways; it can be overwhelming. My question regards how you view financial markets within your faith.

I was originally going to work at an internship at a hedge fund in 2008. I thought it’d be the dream: making big money! But that summer, when all hell broke lose, the hedge fund closed down before I could even start. Fast forward six years, and I’m working in corporate finance at a non-financial company – nothing to do with the markets. I want to jump back in, but not as a trader. I feel there was some Divine Providence in how I’ve perceived my “close call” with the trading world. I’m currently trying to understand how I can approach careers involving the financial markets that don’t force me to leave my faith at home. How do you approach the world of finance with your faith?

Thank you so much for taking the time to read this, and God Bless.

Dear Friend,

I went through a similar experience early in my Christian walk, because sadly, I ran into some Evangelicals who denigrated earning money – Evangelical Leftists were more common in the late ‘70s. Thus, I turned against Finance though I was good at it. My Master’s thesis anticipated price and earnings momentum, and most quantitative long-short equity hedge funds. Too bad for me; I aimed at doing development work in the Third World. As it was, when I figured out that development economics tended to inhibit growth, and its opposite encouraged it, I gave up. I started a career in finance as an actuary.

When I did that, I realized that I must do many things:

Be a good example to those around me.

Be friendly and pleasant to my co-workers.

Oppose fraudulent practices.

Be honest with those with whom I dealt.

Apologize when I sin or make mistakes.

Avoid bad language. That not only means foul language, but also cruel language, even if it is technically clean.

Work hard.

Learn, learn, and learn. A dirty secret about Evangelical Christians is that we read more than non-Christians, and have more Ph.Ds per capita. Okay, the Jews have us beat there, and badly.

Avoid working on the Lord’s Day [Sunday].

Don’t be afraid about using the Bible as an analogy or as an example. After all, people cite all manner of garbage as authorities, and the Bible is not permitted? Is it because the Bible claims universal authority that people want to ban it? Yes, that is why. No one wants the Owner of the Earth to remind us of His claims.

I was always honest with coworkers about my faith in moments where it was natural, but I never beat them over the head with it.

Practically, the most important thing is to be honest, keep your word, aim for competence, and be faithful in your dealings with others.

Any vocation can be pursued in a worldly or Christian way – most of it is the attitude that you bring to it. “Whatever you do, do it heartily, as unto the Lord.”

One final note: one time, I was given a very hard time by a boss who was under a lot of pressure. Nominally, I was his assistant, and so the rest of the team was amazed with what he put me through, while I largely kept a good attitude (it was not perfect). One of my co-workers, a Christian, came to me privately and asked how I was doing. I said that I was fine. She knew me well, and said that she was praying for me, and that the entire staff was astounded that I would put up with what the boss was doing. I told her that he was the boss, under a lot of pressure, and that if I pushed back, it could do a lot of harm to all of us. I was not doing it for me.

It made an impression on the staff, and though they liked me, when the boss left six weeks later, they chose me to run the unit. Truth, management above chose me, but without their support and love, I would not have been half the leader that I was.

So, serve for the good of others, and you will succeed. “Love your neighbor as yourself.” [Lev 19:18]

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A younger friend of mine sent me an email asking for investment advice. Here is the redacted version of it:

I’m not sure if you are aware of a blog called mrmoneymustache.com. The guy who runs the blog retired in his late twenties just working a software development job. Granted, he was really fortunate to have graduated college and started his career in the dot-com bubble, but he didn’t have a really high-paying job by any means during that time. Anyways, his main strategy was saving 70-80% of his income and investing heavily into Vanguard index funds. He stopped contributing to his 401Ks early on and started putting the rest of his savings into taxable accounts with Vanguard (index funds) in order to retire early and withdraw his 4% from his portfolio every year for living expenses. I think it’s a pretty interesting blog and might be worth checking out if you had the time. I’d be really interested in your general thoughts about him and his blog and if you think he gives wise investing advice.

[Wife] and I both have IRAs ([Wife] has a traditional 401k and I have a Roth). [Wife] actively contributes to her 401k every paycheck and I think it has about $XX in it. I put the max contribution amount into my Roth every year, currently $XXXX, and it is at about $XX. I always hear it’s important to max out your tax deferred and tax free accounts before opening a taxable account. I think we’re at the point where I want to start investing in a taxable account. I like Vanguard and their low expense ratios and I know index funds outperform actively managed funds in the long-term.

I was thinking about opening a vanguard taxable account and starting off small (5-6k) with my investments into VTSMX and VFWIX with a 50/50 split. Do you think this would be a wise move? I don’t want our money sitting in savings accounts and not even keeping up with inflation. I almost feel like it’s foolish not to invest as much as possible.

Anyways, looking forward to your response and thoughts on MMM and his blog.

Thanks Dave!

First, I want to commend you for making an effort to save and invest early. Most people don’t do that, and it is a major reason why they never become financially secure.

Second, I want to thank you for introducing me to Mr. Money Mustache. As one that has sported a full beard for the last 20+ years, I can appreciate the name. He saved lots of money in his twenties, and invested it in stock index funds at Vanguard. I am a Vanguard fan also, though I use them less often now, because my stockpicking has done well.

MMM reminds me of a more severe version of Dave Ramsey, minus the Christianity. If you can deny yourself in the early years, work hard, keep expenses down, and build up a nest egg early, wow, do it. Most people can’t do that. You and your wife have already accumulated more than most have at similar ages. Keep it up. Having a bias against unnecessary spending is a good thing. When my kids ask me why we don’t get new cars, I tell them that they run, and I will drive them until the cost of maintaining them is greater then the cost of buying and maintaining another car over the long run.

It is wise to avoid too much debt, and wise to pay it down early. I have been debt-free for the past 11 years, including the mortgage. Excluding the mortgage, 22 years. It changes you, and frees you, because when you don’t have worries over paying debts, you don’t have the same degree of concern of are you going to run into financial trouble.

In inflation-adjusted terms, you are roughly as well-off as my wife and I were when we were your average age. Good job, and keep it up.

Third, you are young, so investing 50/50 in US/Foreign Total equity index funds from Vanguard is fine, especially the Foreign part of it. I say that because the US Stock Market is priced to deliver 5.5%/year returns for the next 10 years. Foreign markets offer more return now. When MMM was investing his savings the market was priced to earn 9-13% or so per year.

This brings up another point. I don’t like earning nothing on my money, as it is with most banking and savings accounts, but sometimes that is the best option. In September of 2000, the US stock market was priced to earn -2%/year returns for the next 10 years. That was a time to throw stocks out the window. I didn’t do that, and my value investing made money in 2000 and 2001, though I got whacked hard in 2002.

Not every moment in the market offers the same degree of opportunity to make money. To the degree that you can, be ready to invest when markets have fallen, and things look bad. If you want to be clever, after a severe fall invest after the S&P 500 is higher than its 200-day moving average.

But investing regularly to some degree immunizes market environments. You will invest in good times and bad. In the end, the discipline will benefit you. You have saved, invested, and did not panic when things went bad. You lived to prosper when things went good.

But, you might tilt your US assets to the US value index fund, and if Vanguard has a foreign value index fund, you might do that as well. Value outperforms over the long haul, so do that if you can. If small stock valuations weren’t so high now, I would tell you to look for small cap value, but I won’t, it doesn’t make sense now.

Fourth, yes, start the taxable brokerage account with your excess money. I started mine at age 29, and the economic help it has been to me has been significant. I would not have been able to start my business in 2010 if I had not done that. Or survive the low earnings years 2008-2012.

Fifth, all that said, I have one more insight to add. I’m sure that MMM enjoys his life and works, even though he is “retired.” The Bible warns us about not wearing ourselves out to get rich, in Proverbs and Ecclesiastes. Hey, it is nice to live off of a passive income, but the Lord made us to work six days, and rest on the seventh. Work is an ordinary part of life even if you are managing your assets, and it is to be enjoyed.

What MMM suggests may be harder to bear than many people are capable of bearing. We should appropriately enjoy life and not be misers. The Larger Catechism in talking about the Eighth Commandment encourages us to enjoy what God has given us. As we prosper, we should thank God for it, and enjoy it.

You have a wonderful wife, and that is reward enough. But save and invest in good times and bad, and it will work out far better for you than those that don’t do so.

The middle class elderly need to stretch the meager incomes that they have amid low interest rates (courtesy of the Fed), and are tempted by those offering plans where they can earn more on their assets.

The rich elderly have money — they are prime targets even if they are smart.

Seniors are targets, and not just by those who are regarded as fraudsters. I had an older friend who was approached by the sales professionals of a major bank to manage her $3 million portfolio, which was already well-managed. They made all manner of promises of what they would do for her, in exchange for a fee on assets — 3%/year.

At that level of expense, there are a lot of things that could benefit the Senior in question, but the nice-looking, unctuous people from the bank sell an expensive mirage. I’ve never seen a bank that was genuinely good at asset management, and certainly not to the degree of charging a 3% fee.

Every elderly person needs a younger skeptical friend who is sharp enough to be able sense when a deal is sketchy, and the elderly person needs to have the discipline to run things by their younger friend.

As I so often say, “Don’t buy what someone wants to sell you. Buy what you have researched for yourself.” The elderly should develop a hatred of marketers. Hang up on anyone who is offering something that is “too good to be true” because it almost always is too good to be true.

To those who Lead Churches

I am an elder in my Reformed Presbyterian congregation. I have served my denomination on the boards of its college, denominational trustees, finance committee, and pension board. In my congregation, we watch out for our elderly members. We make their requests a priority. If they need financial advice, I give it to them for free. God rewards those who aid widows.

I encourage Church leaders who have enough financial sense to be able to know when something financial “feels funny” to gather their elderly congregants, and tell them to call you if they are tempted by slick-talking salesmen to make them part with money.

To those who Love Elderly Family or Friends

Take the time to tell them to be careful, and that you are available to help them whenever someone calls them out of the blue, where that party will benefit from money from the senior, no matter what it is. This isn’t as tough as telling them to give up the car keys (been through that once). But they do need to be sensitized to two things:

There are people out there who want to cheat them, and

You love them, and will help them in any situation like that.

We’re supposed to take care of and honor elderly people anyway. Societies that don’t do that tend to fail. So look out for your elderly friends to the degree consonant with your relationship to them.

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One of the great things about the US is that people give their time and effort for things that benefit society. It is a secular offshoot of the Puritan idea of creating a Holy Commonwealth. We are out to save the World from itself, but now, without anything like Yahweh/Jesus telling us to do it.

I must admit that I serve in both spheres — I am an elder in my Bible-believing Presbyterian congregation. I also serve on the Baltimore CFA society’s board, and may become a part of the board that oversees the pension plans for Howard County, should the county executive so choose me. (As an aside, I applied for similar posts at the Maryland State level, but I fear that I am either too controversial, or too qualified. I suspect that they don’t want people who really know the business.)

When I came to Baltimore, my boss had a number of things to teach me:

When someone asks you for help finding work, give him help.

Break off time to aid the broader interests of your industry, in this case, the CFA Society.

Where you have the opportunity, favor the local financial community if it doesn’t cost a lot to do so.

Help students and young professionals where you can.

I have made an effort to do this. I aid people who are looking for opportunities, and I advise them. I may not be the best, but I have been around the block a few times. I really enjoy aiding people to find jobs in investing. I love spending time with students, and encouraging them to think broadly about how investing works. It is not a simple formula.

Thus I find my time pulled many different directions, and my dear wife wonders at how I do it. The truth is, I don’t do it. I have as many hours as all those who are alive. It is just a question of the distractions that you block out in an internet era.

Thanks for reading me, and as Program Chair for Baltimore CFA, if you have any great speaker ideas for me, please send them to me. Thanks.

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All hail the CFA Institute. They are trying to inject more ethics into the market through their “Future of Finance” initiative. I largely agree, but think they are overly optimistic in some areas.

Here are their basic ideas: http://www.cfainstitute.org/learning/future/about/Pages/statement_of_investor_rights.aspx

Here are their dreams: http://www.cfainstitute.org/about/vision/serve/Documents/integrity_list.pdf

My main problems are with the dreams. Yes, I eventually want every investor to work with someone who has a fiduciary interest in his well-being. But many people don’t want to take the time to find the people who have their best interests at heart. There are many things we can overcome, but we cannot overcome the laziness of investors, both retail and professional. This laziness is part of the nature of man; a few cure it through consistent effort, but most don’t.

To that end, some blame belongs to the unintelligent investors who barge into a market without sufficient knowledge. That’s how it should be, because in many areas of business those that try to compete with insufficient knowledge lose vitality because they don’t know the basics of the business.

You can’t protect people from stupidity. Fraud is another matter. Deception is different from dumb agreement.

But here is my main challenge to the CFA Institute: where do your ethics come from? Why are they right? Are they God-given, or merely an agreement among men?

This matters a great deal, because if it is merely an agreement among men, many men will say, “So what! Why should I listen to you?” If they are God-given, even if men argue with them, the answer comes back from God, “You are a sinner in many ways, including this. When will you humble yourself to me, and trust in the sacrifice of my Son, which was the largest event in history?”

Ethics aren’t neutral; people disagree about what is right and wrong to a high degree. Even in finance, there are considerable disagreements in what is the correct behavior:

Active vs Passive mangement

Value vs Growth

Does Technical Analysis work? (Is there truly a single discipline there? I don’t think so.)

That’s a considerable reason why it would be difficult to enforce the views of the CFA Institute over the markets. There is no commonly agreed-upon view of how the markets work. The views of the academics are ridiculous, and do not reflect market realities. But many asset allocators trust them, even though their results are poor.

Don’t get me wrong, I largely favor what the CFA Institute is proposing. I just think it will be hard to turn it into public policy because of the large disagreements over how finance actually works. Also, the degree to which neglectful parties buy into the markets through the persuasion of sellers, because they won’t look out for their own best interests directly.

So, look at what the CFA Institute is up to. They are part of the “White Hats” in the market, like me, who argue for the good of investors. My only difference with them is that their model of the market is not fully accurate. Nor do they understand how men can err, even with detailed ethics codes.

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After I finished last night, I realized I had a few more things to say. First I need to correct what I wrote in part two regarding the separation of Buffett and Susie. Here’s some help from one of my readers:

I do have a bone to pick with your review of the Snowball, part two: in describing the Buffett’s separation and arrival of Astrid Menks, you have substituted your own judgment for that of Schroeder and Buffett, without making it clear that it is your own viewpoint. I certainly understand your assessment of the marriage and perhaps your desire to defend Buffett, as he is someone you clearly respect (as do I). But Buffett’s own view, expressed in the book that Susie’s leaving was “99% [his] fault”. Schroeder also indicates that Buffett was quite difficult, and of course, he was totally driven, and in any case, not terribly emotionally supportive.

The ethical judgments that I made in parts two & four were mine. They were not those of Alice Schroeder, Buffett, or anyone in Buffett’s family. That said, because of the role I play in my church, I have had to counsel some people on marriage. My results have been good, bad, and indifferent. Usually I think that I have been called in on the late side, when hope is almost non-existent. Better to call in a counselor on the early side.

I have known many men, and some women who I would call “pieces of work,” where they are very difficult to get along with. I’ve seen cases where the spouses of such people succeed, and more where they failed. In marriage, it takes two to make a failure, leaving aside adultery and desertion.

My opinion is this: if Susie could bear with it for 20 years, she could bear with it for 40 or more. Buffett was maturing emotionally, and was better able to interact with others. Susie missed the best years of Warren.

As it is, children are affected even if adults when parents separate; they become more prone to divorce. Buffett’s children had their own marital problems. It also doesn’t help when you didn’t get a lot of attention from your father when young.

On the Patience of Buffett

Buffett does not have to deploy capital; he does not have to grow. He can live with a lot of cash on hand, earning zero. He knows human nature. As a group, we tend to panic every five years or so. Buffett picks up a lot of bargains, whether by sector, or across the market as a whole. He finds good companies that are out-of-favor, and he gives them a good home. This is very different than how most people invest.

Buffett waits until he sees a return on book capital with reasonable certainty that exceeds his threshold, and then he buys aggressively. He can do that because he has a balance sheet, and he has simple goals for return on capital. So long as he continues to be careful he never has to worry about insolvency — his balance sheet is conservative.

Final note on Religion

Because of who I am, I was interested in how Buffett’s and Susie’s parents viewed religion. Buffett and Susie were a lot like my in-laws: raised in the church, but turned against God. There was something in the era, as people sought bad interpretations of the Bible so that they could live their own way, and not God’s way.

Quibbles

Already expressed. This is a great book if you are looking to read about the life of Buffett, rather than the aspects of Buffett’s investing that you can’t imitate.

Who would benefit from this book: This book will not help you invest like Buffett, unless you are bright, and know all of the details that lay behind Buffett’s strategies. This book is the best to help you know Buffett the man. It is a great book. If you want to, you can buy it here:The Snowball: Warren Buffett and the Business of Life.

Full disclosure: I borrowed it from the local library.

If you enter Amazon through my site, and you buy anything, I get a small commission. This is my main source of blog revenue. I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip. Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book. Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website. Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites. Whether you buy at Amazon directly or enter via my site, your prices don’t change.

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I write this because it should be obvious but is not. I grew up in a house where my Dad earned an average income from his business, but my Mom took around 10% of the income and invested it half in utilities and half in growth stocks. As my Mom said to me, “My utilities are my bonds.”

Bright lady; my first teacher in investing. She beat the market for four decades plus.

But the main thing that she did right was to spend less than my Dad earned. This is critical. You can’t build capital unless you set assets aside. This is the most important of the rules. You must consume below your means, and invest the surplus wisely. I remember many ways in which she said “no,” to a variety of expenditures. We didn’t live below the appearances of our neighbors, but we were one of the last on the block to get a color TV. Good thing, TV is such a waste of time — and I wasted a lot of time there when I was a kid.

The second main thing that she did right was take moderate risk. Looking at her portfolio, one might ask, “Why so many utilities?” Or comment, “A lot of boring GARP-y stocks.” I contrast her with my paternal grandfather, who retired in 1966-7, and sold his business to his two sons, and then lived off the interest income from CDs, etc. He took no risk in his retirement, though he took moderate risk as a businessman, and as a pool player. (Rumor is he was Wisconsin state champ at some point… but I can’t prove that. I played him a kid, and never won. My Dad, who learned from him, I beat only once, and lost many times to him.)

An investor in CDs will get what he contracted for, absent default. The investor who is like my Mom will have a more jagged trail, but will earn more. Even in the late 70s and early 80s, my Mom did not lose confidence in her strategies, even as Grandpa earned 15%/year on his CDs. Her time was yet to come.

My Mom would hold stocks for 10 years on average. So long as you pick companies with a sustainable competitive advantage, you will generally do well over longer periods, should you have the fortitude to not trade frequently.

So, my third point is don’t be an aggressive trader. Yes, have trading rules, but don’t try to make money in the short run. Try to make money in the long run.

My fourth point would be “do it yourself” if you can. (Yes, I know I run money for others. I will say what I believe even if it costs me business.) But that means you have to learn a lot, like my mom, or me, or my father-in-law, three people all mostly self-taught, with different investing philosophies. Good investing is like running a business on the side. It is not easy.

My fifth point is pay attention to taxes, but don’t let taxes dominate your decisions. There’s a balance here, and for my clients, I try to generate taxable losses on net, while letting winners run.

My sixth point would be that income in investing is important, but not for the reason you might expect. Income is important because it motivates reinvestment opportunities, not consumption opportunities. When you are older this changes a little, but in many cases it is smarter to focus on total return, and consume from capital rather than have every stock try to produce income. That said stocks that pay dividends tend to do better than those that don’t. 28 of the 33 stocks in client portfolios (of which I am a client as well) at present pay dividends, and the portfolio as a whole has an above-market dividend. Reinvesting income compounds your gains in new ideas that were hopefully more promising in the new environment.

The seventh point is study investing to the point where you have an intelligent strategy, and once you have that, don’t abandon it. Too many people flit from one hot idea to another, but never end up with a coherent strategy that that employ for decades. Even if I close down my investment business, I will keep applying the same investment strategy for myself, it has worked well for me, even if at present it has been middling for clients.

Every investment strategy goes through periods where it works poorly. That’s life. If you have a strategy that always works well, that means:

You haven’t run it long enough.

You’re not running enough money.

You’re not taking enough risk.

Survive through your bad times, and prosper during the times where your intelligent strategy is paying off. Patience is a virtue in investing for the most part.

Okay, there are seven points from my experience, from my Mom, and from my late Father-in-law. None of us trained to invest in a formal way, myself included. (Yes, I received a CFA Charter, but I knew far more than the syllabus did before I took the exams. The academic stuff I learned was not a help when I was in graduate school.)

An eighth point to consider is that money matters temporally. Eternally, no, it doesn’t matter. No one can buy Heaven, as Psalm 49 points out. But you can use your wealth to aid those who are trying but failing. That’s important. As John Wesley put it, “Earn all you can, save all you can, give all you can.” I am fairly certain that the first two were honored more than the last one, but Wesley was correct there.

In general, being willing to give also correlates with prosperity. Doing well means more than becoming rich; it means living your life for the good of others. We should not live for ourselves. Money is merely a means; it is not an end in itself. Use your money to the best end that you see. Loan money to a poor but honest friend at no interest. You will do something really good there, and God will bless you. I have done that many times in my life, and it has paid off, though I can’t prove that empirically.

One more note, when you are a giver, you become more careful with your own spending. You begin thinking more broadly about the world, and realize there is little advantage to most luxuries. If you have enough, good. Even Warren Buffett (No Christian he) likes his Burgers and his Coke. He does not look to luxury in consumption, even as he owns jewelry stores.

He is a bit of a miser, but as he has aged, he has handed over most of his wealth to the Gates Foundation.

In closing, take care over your saving, investing and giving. They are all important aspects of how those who are improving their financial well-being improve their lives.

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This post is directed at people who don’t get the markets. People who think they they are experts can stop reading now.

I’m the Chairman of the Pension Board of the Reformed Presbyterian Church of North America. Yes, that long-lived but small denomination that never went through the controversies of modernism, still teaching that Jesus Christ rules everything on earth NOW, and we exclusively sing the psalms of David without accompaniment in our worship.

Here is something that is no surprise: most pastors who are serious students of Scripture don’t get financial markets. Truth, that is true of most people who know their technical crafts, but don’t get how financial markets work.

What I am about to say should work for most people who don’t get investing — choose a blend of risky and less-risky assets. Ask your self this question: how much are you willing to lose in a year at worst as a percentage of assets? Take that amount and multiply it by 2.0-2.5. That is the maximum amount that you should allocate to risky assets. (Strangely, that mostly corresponds to the current margin rules.)

Average people can’t monitor the markets, and even if they did, they would not know what to do. Far better that they “set it and forget it,” than that they panic when things are are going bad, or get greedy when things are running hot.

Thus we encourage the pastors to buy blended funds. I encourage them to buy one notch down on their risk tolerances, because the return give-up is small, but the likelihood of them not panicking is large.

For those who are uninformed, that is important. Buy-and-hold is a good strategy if maintained at a risk level that avoids panic.

Now. I’m not crazy about the market at present. I would shade allocations to the 2.ox side of risk, not the 2.5x side. But what we have found at the pension board of the RPCNA is that the pastors do best who choose a blended fund that they can stick with through tough times.

My own pastor is squeamish with investing, but I looked at what he “should” do in investing, and told him to dial it back one notch. It has been to his benefit. He has not panicked, and has made decent money over the last 10 years.

Thus to summarize: estimate your willingness to lose money over a year, and size your allocation to risky assets appropriately.